Risk management of venture capital projects?

The development history of domestic venture capital is not long. Due to the particularity of the objective environment, there are some congenital deficiencies in domestic venture capital. China's venture capital lacks relevant normative legal environment, qualified professional venture capital talents and venture capital experience. All these make the risk of venture capital projects in China show certain particularity, so special requirements are put forward for the risk management of investment projects.

First, the current status of risk management of venture capital projects

1. Insufficient risk avoidance before investment. Due to the lack of operational experience in venture capital, venture capital companies in China underestimate many risks in different degrees in the due diligence stage of projects, generally use less relevant quantitative analysis methods, and do not properly handle and control the estimated risks, thus causing poor risk avoidance before investment to some extent. In addition, due to lack of experience, the need to control investment risks is often not fully considered when drafting investment agreements, and there are many imperfections. For example, the investment agreements of some early venture capital projects did not set the clauses of "one-vote veto system" and "gradual liberalization of equity", which led to such problems after investment, lack of effective control means and even helplessness.

2. Information asymmetry is serious. China's venture capital also faces a serious problem, that is, there is a big information asymmetry between venture capitalists and venture enterprises. Theoretically speaking, because venture capital actively participates in the management of venture enterprises to a certain extent, compared with other investment methods, it can alleviate information asymmetry to a certain extent. However, due to the special environment in China, the information asymmetry between venture capital and venture enterprises is still very serious. One reason is that China's corporate governance structure is generally imperfect, not only lacking a perfect system, but more seriously, entrepreneurs' awareness of governance structure is generally weak. For example, many entrepreneurs think they are bosses and are unwilling to disclose relevant information to venture capital shareholders. Therefore, there are great obstacles for venture capital to supervise investment projects. In addition, due to the lack of a sound credit system in China, the moral hazard of entrepreneurs and professional managers is high, which intensifies the information asymmetry and affects the control of investment risks.

Second, the risk distribution characteristics of venture capital projects

With the development of venture capital in China, many venture capital companies have invested in many projects and accumulated some practical experience in venture capital. In the actual process of project operation, it is found that the risk problem of investment projects is outstanding.

1. Lack of funds has seriously affected the survival and development of venture enterprises.

At present, a common problem in China's venture capital projects is that venture enterprises fall into financial crisis due to insufficient funds. There are many reasons for this. One reason is related to the investment mode of venture capital in China. In the early days of venture capital in China, joint investment was not paid much attention, and usually a venture capital company invested in one company. Venture capital pays more attention to the entry price and the shares it holds, and often lacks a detailed analysis of the funds needed for project development, resulting in insufficient investment funds, or the actual situation deviates greatly from the forecast in the process of project development, making it difficult for investment funds to support the project to achieve the expected business objectives when investing. According to the theory of venture capital, venture capital should be baton investment, but at present, in China, venture capital is reluctant to take over enterprises invested by other investors, which makes it difficult for start-ups to carry out the second round of financing. In this way, many venture capital companies lack funds for their projects, but venture capital companies are afraid of continuing to invest because they are worried that the investment risk will become greater after continuing to invest funds. Other investment companies think that you are unwilling to increase capital. It must be that the project is not good, so I don't want to take over and invest in such venture enterprises. So that the venture capital companies that invest can't retreat, and they dare not invest more, and they are in a dilemma.

Venture enterprises are in the development period, and the first round of financing obviously cannot solve the required funds. If they can't raise the capital needed for expansion, it will directly endanger the healthy development and even survival of venture enterprises. This dilemma is a typical investment project risk.

2. The single product structure leads to poor market adaptability of venture enterprises.

Many domestic high-risk projects have a single product structure and business, and their market adaptability is poor. When the relevant market changes or the competition is fierce, their income will be greatly affected. There are also some projects with advanced product positioning. The original market growth is slow, and enterprises have no other alternative products and income sources, so they can only wait for the development of related markets, which leads to the deterioration of financial situation and the formation of risks. The single product structure and the lack of long-term planning ability of enterprises are one of the main risks of venture capital projects in China.

3. The corporate governance is backward and the management ability is low.

The internal governance structure of most venture capital institutions in China is imperfect and the system is not standardized, which leads to low management efficiency and uncontrollable operating costs, which affects profitability. Investment enterprises lack the business philosophy of creating value for shareholders, which leads them to shield information from venture capital companies, increase information asymmetry and increase the investment risk of venture capital.

Some entrepreneurs have moral hazard, especially when the technology investor is an enterprise manager, there is often a phenomenon of artificially raising the operating cost of the enterprise or gaining personal gain by transferring assets. Due to the imperfect system, the control of moral hazard is limited. At the same time, some entrepreneurs are mostly technical experts, lacking management experience and weak comprehensive management ability, which affects the development of entrepreneurial enterprises.

4. Financial risks affect profitability.

There are many financial characteristics of venture enterprises, one of which is the high proportion of accounts receivable of venture enterprises, which affects the profits of enterprises.

Third, the way of risk management and coping strategies

1, management mode

First, adopt stricter legal constraints and add special protection clauses for venture capital in investment agreements. For projects that lack relevant binding clauses in the pre-investment agreement, when the investment projects increase capital or other events occur, they should be used as negotiation conditions, add new binding conditions, strengthen the monitoring of investment projects, and prevent and avoid risks. Because start-ups are generally in urgent need of the second round of financing, if venture capital companies are willing to continue to invest in projects, they can take relevant provisions as the premise of continuing investment when negotiating with entrepreneurs to increase capital, thus strengthening the effectiveness of regulatory provisions in investment agreements.

Second, promote the standardization of the internal governance structure of investment enterprises. Venture capital companies must consciously promote the improvement of the internal governance structure of venture enterprises and cultivate their awareness of standardized management. It is necessary to clarify the responsibilities and rights of the shareholders' meeting, the board of directors, the board of supervisors and the management, and to restrict the behavior of investors and operators by establishing and perfecting the system. It is necessary to establish modern enterprise management concepts and standardize enterprise management with advanced management means and methods.

Third, we should contract supervision by providing value-added services. According to the cultural habits of Chinese entrepreneurs, Chinese venture capitalists should adopt flexible strategies for risk management of investment enterprises. It is necessary to establish good relations with the invested enterprises, provide more management consulting and help introduce value-added services such as customers and partners. Exchanging services for the cooperation of investment enterprises is helpful to grasp the information of the invested enterprises in time and do a good job in risk management and monitoring.

2. Coping strategies

First of all, we should always pay attention to the financial situation of start-ups with insufficient funds or enterprises with poor prospects. For enterprises that have been or will soon be unable to support, it is recommended that venture capital companies stop losses in a timely manner by means of dormancy, merger and liquidation; For enterprises that still have development prospects, we should pay close attention to their financial situation to prevent entrepreneurs from harming the interests of investors; Provide effective market development help for entrepreneurs, and at the same time find strategic partners in technology, market and capital for them; For projects with good development prospects but insufficient funds, we should actively help contact loan guarantees to obtain bank loans, or increase investment.

Secondly, for enterprises with a single product structure, it is suggested to expand the product line as much as possible, or change the business strategy appropriately to open up new profit points. For enterprises that are still in the product development stage, we should have a deep understanding of the potential market of their products, and suggest increasing the product width and market adaptability during the development process, and adjusting the product direction and business model appropriately with the market changes.

Third, for enterprises with weak management ability, it is necessary to strengthen coordination and communication with management, export value-added services and management as much as possible, help enterprise managers improve their management level, or recommend professional managers to directly participate in management, urge the invested enterprises to improve their corporate governance structure, and help the invested enterprises establish and improve their internal management systems.

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